Aetna 2006 Annual Report Download - page 42

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In order to remain competitive, we must further integrate our businesses and processes; significant
acquisitions could make this integration more challenging.
Ineffective integration of our businesses and processes may adversely affect our ability to compete by, among other
things, increasing our costs relative to competitors. This integration task may be made more complex by significant
acquisitions, and our strategy includes effectively investing our capital in appropriate acquisitions in addition to
share repurchases or current operations to seek to generate returns. In addition to integration risks, some additional
risks we face with respect to acquisitions include:
• The acquired business may not perform as projected;
• We may assume liabilities, including those that were not disclosed to us;
• We may be unable to successfully integrate acquired businesses and other processes to realize anticipated
economic and other benefits on a timely basis, which could result in substantial costs or delays or other
operational or financial problems;
• Acquisitions could disrupt our ongoing business, distract management, divert resources and make it difficult
to maintain our current business standards, controls and procedures;
• We may finance future acquisitions by issuing common stock for some or all of the purchase price, which
could dilute the ownership interests of our shareholders;
• We may also incur additional debt related to future acquisitions; and
• We could be competing with other firms, some of which may have greater financial and other resources and
a greater tolerance for risk, to acquire attractive companies.
General market conditions affect our investments in debt and equity securities, mortgage loans and other
investments and our income on those investments.
As an insurer, we have substantial investment portfolios of assets that support our policy liabilities. The investment
income we earn from our investment portfolios is driven by the level of interest rates in the U.S., and to a lesser
extent the overseas, financial markets. Generally speaking, lower interest rates, such as those experienced in the
U.S. financial markets in the early part of this decade, will negatively affect our investment income. Although we
seek, within guidelines we deem appropriate, to match the duration of our assets and liabilities and to manage our
credit exposures, a failure to adequately do so could materially adversely affect our results of operations and our
financial condition. Financial market conditions also affect our capital gains or losses from investments.
We outsource and obtain certain information technology systems or other services from independent third
parties, and also delegate selected functions to independent practice associations and specialty service
providers; portions of our operations are subject to their performance.
Although we take steps to monitor and regulate the performance of independent third parties who provide services
to us or to whom we delegate selected functions, these arrangements may make our operations vulnerable if those
third parties fail to satisfy their obligations to us, whether because of our failure to adequately monitor and regulate
their performance, or changes in their own financial condition or other matters outside our control. In recent years,
certain third parties to whom we delegated selected functions, such as independent practice associations and
specialty services providers, have experienced financial difficulties, including bankruptcy, which may subject us to
increased costs and potential health benefits provider network disruptions, and in some cases cause us to incur
duplicative claims expense. Certain legislative authorities have in recent periods also discussed or proposed
legislation that would restrict outsourcing and, if enacted, could materially increase our costs. We also could
become overly dependent on key vendors, which could cause us to lose core competencies if not properly
monitored.
Our pension plan expenses are affected by general market conditions, interest rates and the accuracy of
actuarial estimates of future benefit costs.
We have a pension plan that covers a large number of current employees and retirees. Unfavorable investment
performance, interest rate changes or changes in estimates of benefit costs, if significant, could adversely affect our
operating results or financial condition by significantly increasing our pension plan expense and obligations.